LOS ANGELES, CA – With high-profile produce acquisitions and investments making headlines in recent months—including Del Monte Fresh Produce’s acquisition of Mann Packing and Total Produce’s equity investment in Dole—private equity is on the minds of those in our industry.

I recently had the opportunity to discuss private equity investments with Joel Montminy. As the Founder and CEO of CREO | Montminy & Co., a Los Angeles-based boutique investment bank, Joel and his firm have advised over 100 companies in the food industry—including nearly two dozen in produce.

Q: How do you envision the role of private equity in the fresh food business?

Joel Montminy: A good private equity investor provides an operator with some liquidity to diversify wealth, capital to grow and take more business risks, and experience in professionalizing businesses to reach its next level. Active private equity interest in an industry also forces strategic buyers to pay a minimum level of price—so for anyone looking to exit their business it serves as an important market benchmark on valuation.

Q: What are some of the challenges associated with operating in this industry? The rewards?

JM: Challenges are several, including operating with higher demands in the areas of personal accountability, scrutiny, and accelerated decision making. Timing is also a constraint, as private equity owners typically have a three to five year horizon on their investment before looking at exiting and when compounded with leverage, there is less room for error and patience for long-term investment. The rewards can be outsized returns for all equity holders through leverage and growth.

Q: How would an interested party—maybe a grower/packer/shipper—approach the potential of a private equity investment? What would the process look like?

JM: In today’s sophisticated capital markets, most companies seeking an investor have representation either from their lawyer, accountant, or investment banker—or more often than not, all three. A company can always approach a private equity source directly, but not having the proper agent to package and sell the deal and provide other options makes for a challenging negotiation and transaction. In my experience, private equity investors want and appreciate when sellers have professional representation as well, as it indicates they are serious and well-prepared to make a transaction happen.

Q: What are some of the characteristics that make private equity partnerships work? What constitutes a ‘good fit’ for investors and operators looking to pair up?

JM: Private equity can bring to the fresh food industry the same financial discipline, rigor, and growth-oriented mindset that has accelerated and transformed nearly every other industry. They focus on improving operations, financial restructuring, and valuation expansion (from entrance to exit). That mindset also typically brings a bottom-line, short-term approaches with limited tolerance for deviation to plan. In today’s frothy market, investment capital is basically a commodity. What really differentiates a good fit is personal chemistry and vision alignment. Without that from the onset the relationship will be at risk whenever a significant challenge arises.

Q: Can you give me some examples of private equity partnerships in fresh produce that have flourished?

JM: We have represented and observed many fresh produce companies succeed post-investment but one that comes to mind was our sale of FreshKO Produce Services in Fresno, CA, in 2012 to Encore Consumer Capital. Encore was, up until that point, exclusively focused on branded consumer companies but they recognized the rising tide of healthy eating trends and the value of penetration throughout the supply chain. FreshKO’s owner/management team stayed on to run FreshKO and with Encore successfully grew the business for full exit to C&S Wholesale in 2015.

Q: What are your impressions of the recent Total Produce/Dole deal?

JM: I know Total Produce very well and they are a fantastic organization—they operate and think much like a private equity investor but with patience and strategic resources. Dole is an iconic, global brand coveted by many investors. I think this particular combination is a terrific move for both sides.

Q: Is there anything else you would like to get in front of our readership?

JM: Private equity investor interest works in cycles and we are at an all-time high in fresh produce. The relationship is not for everyone but it is available now to more companies than ever before.

To learn more about the role of private equity in our industry, interested parties can see Joel alongside Jay Pack, Ferrell Daste, and moderator Robert Lambert at the 2018 Viva Fresh Produce Expo’s educational session of mergers and acquisitions held April 6^th at 8:45 a.m. during the three-day event held at the JW Marriott Hill Country Resort & Spa in San Antonio, Texas.

For more fresh produce news, stay tuned to AndNowUKnow.

CREO | Montminy & Co.